Income Taxes

We are the sole managing member of RMR LLC. RMR LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, RMR LLC is generally not subject to U.S. federal and most state income taxes. Any taxable income or loss generated by RMR LLC is passed through to and included in the taxable income or loss of its members, including RMR Inc. and ABP Trust, based on each member’s respective ownership percentage. We are a corporation subject to U.S. federal and state income tax with respect to our allocable share of any taxable income of RMR LLC and its tax consolidated subsidiaries.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act significantly revised the U.S. corporate income tax system, by among other things, lowering corporate income tax rates. Since we have a September 30 fiscal year end, we currently expect that the lower corporate income tax rate of 21.0% will be phased in, resulting in a federal statutory tax rate of approximately 24.5% for our fiscal year ending September 30, 2018, and the new corporate income tax rate of 21.0% for subsequent fiscal years thereafter. The Tax Act reduction in the corporate income tax rate also caused us to adjust our deferred tax asset to the lower federal base rates, resulting in an increase in income tax expense of $19,817, or $1.23 per share, for the three months ended December 31, 2017.

For the three months ended December 31, 2017 and 2016, we recognized estimated income tax expense of $48,343 and $15,673, respectively, which includes $37,730 and $12,744, respectively, of U.S. federal income tax and $10,613 and $2,929, respectively, of state income taxes. We will monitor future interpretations of the Tax Act as they develop and accordingly, our estimates may change.

A reconciliation of the statutory income tax rate to the effective tax rate is as follows:



	Three Months Ended December 31,
	2017		2016
Income taxes computed at the federal statutory rate	24.5	%	35.0	%
State taxes, net of federal benefit	2.5	%	2.5	%
Tax Cuts and Jobs Act transitional impact⁽¹⁾	9.6	%	—	%
Permanent items⁽²⁾	(2.9	)%	—	%
Net income attributable to noncontrolling interest	(10.4	)%	(16.9	)%
Total	23.3	%	20.6	%


(1)	Transitional impact is the $19,817 adjustment to our deferred tax asset due to the reduction in our corporate income tax rate under the Tax Act.


(2)	Permanent items include the $24,710 reduction in our liability related to the tax receivable agreement with ABP Trust as discussed in Note 7.

ASC 740, Income Taxes, provides a model for how a company should recognize, measure and present in its financial statements uncertain tax positions that have been taken or are expected to be taken with respect to all open years and in all significant jurisdictions. Pursuant to this topic, we recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. As of December 31, 2017 and September 30, 2017, we had no uncertain tax positions.